IP Law Daily Summary judgment inappropriate when agreement is ambiguous regarding transfer of copyrights
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Wednesday, October 9, 2019

Summary judgment inappropriate when agreement is ambiguous regarding transfer of copyrights

By John W. Scanlan, J.D.

Whether the parties to an agreement had intended to transfer the copyrights as part of its overall transfer of intellectual property was a question of material fact that should not have been decided by the court on summary judgment.

An agreement between two affiliated companies did not unambiguously prohibit the transfer of copyrights as part of what the agreement called "Know-how" because the language reasonably was susceptible to more than one interpretation, the U.S. Court of Appeals for the Sixth Circuit ruled in vacating a district court’s grant of summary judgment to a copyright defendant. The district court also vacated the dismissal of claims related to the purported assignment of claims to the plaintiff from its predecessor but upheld the denial of attorney fees on a separate false advertising claim, and remanded the matter (Evoqua Water Technologies LLC v. M.W. Watermark, LLC, October 7, 2019, White, H.).

Evoqua Water Technologies and M.W. Watermark manufacture and sell equipment that removes water from industrial waste along with replacement parts for their equipment and those made by other companies. Evoqua is the successor company of U.S. Filter/JWI, and Watermark was previously called J-Parts LLC, which was founded by a former U.S. Filter/JWI employee in 2003. Shortly thereafter, U.S. Filter/JWI brought trademark infringement, trademark dilution, misappropriation of trade secrets, and other claims against J-Parts, alleging that the former employee had taken a large quantity of proprietary and trade secret information and that the defendants were infringing upon its J-PRESS mark for filter presses and J-MATE mark for sludge dryers. The parties entered into a consent judgment permanently enjoining Watermark and the employee (together, Watermark) from using U.S. Filter/JWI’s trademarks and from using, disclosing, or disseminating its proprietary information.

U.S. Filter/JWI was later merged into Siemens Water Technologies Corp. and dissolved, and eventually the business unit was sold to Siemens Water Technologies (SWT) which changed its name to Evoqua. As part of the sale, SWT and Siemens entered into a "Carve-Out Agreement" under which SWT acquired, among other things, the business’s "Know-How," which included "all information and data (irrespective as to whether such information and data is available by way of documentation, orally or in electronic format and irrespective as to whether they are protected by copyrights or not), including business and trade secrets, technical and business information and data, inventions, experience and expertise, all to the extent that such information and data are not Software . . ."

In 2014, Watermark announced the release of its "DryMate" sludge dryer product after Evoqua told its sales representatives that it was discontinuing the J-MATE line. The following year, Evoqua decided to reintroduce the J-MATE, and sued Watermark and current and former Watermark employees, arguing that they had violated the consent judgment by using its propriety information and infringing on its trademarks as well as its copyrights. A federal district court held Watermark in contempt and ordered sanctions, but the case was assigned to another judge that vacated the order, ruling that the consent judgment did not allow for enforcement by an assignee of U.S. Filter. The court subsequently granted Watermark’s motion for summary judgment on the copyright infringement claim because the Carve-Out Agreement unambiguously did not transfer copyrights to SWT/Evoqua. A jury found for Watermark on the false advertising claim, for Evoqua on the trademark infringement claim but awarded no damages and determined that there had been no willful infringement. The district court denied Watermark’s post-trial motion for attorneys’ fees under the Lanham Act, and both sides appealed.

Initial ruling. The Sixth Circuit first determined that, under Michigan law, the consent judgment was assignable to Evoqua because it did not clearly prohibit assignment. Because the district court did not address other issues raised by Watermark regarding the assignment, the appellate court vacated the dismissal and remanded the claims for the district court to address them.

Transfer of copyrights. The Carve-Out Agreement did not unambiguously exclude the transfer of copyrights to SWT/Evoqua because the portion of the agreement that addressed the sale of "Know-how" was fairly susceptible of two different interpretations. The term "all information and data" plainly was broad and, because it lacked any kind of limitation, could include copyrights. The transfer of all information and data "irrespective as to whether they are protected by copyrights or not" also could include copyrights, even though the district court interpreted that phrase as suggesting the copyrights were not part of the assignment. An illustrative list of "information and data" was broad and diverse enough to suggest to the court that copyrights were included in the information and data transferred. Although the district court believed that there was a difference between "information and data" and the ownership in the work embodying that "information and data," the agreement’s language providing for Siemens to transfer a "copy" of the part of the transferred Know-How suggested that the "information and data" transferred may include those in physical media. The fact that a different section of the agreement provided for the assignment of software, which is copyrightable, could mean that one section transferred all copyrights in the Know-how and another transferred copyrights to the Software rather than meaning that copyrights in the Know-how were not transferred.

After determining the language was ambiguous, the court looked to the intent of the parties, noting that there were affidavits from representatives of SWT/Evoqua and Siemens that stated that the parties intended to sell the copyrights. The intent of the parties is a question of material fact and, as a result, the district court should not have granted summary judgment on this issue.

Attorney fees. The Sixth Circuit upheld the district court’s decision to deny attorney fees to Watermark for Evoqua’s false advertising claim under the Lanham Act. At issue during the trial was the parties’ dispute as to whether an advertisement by Watermark that it offered "OEM parts" for Evoqua’s filter presses was deceptive. The court observed that Watermark prevailed because the jury found its witnesses to be more credible than Evoqua’s witnesses; this was not an indication that Evoqua’s case was so weak as to be exceptional. It was within the discretion of the district court to find that Evoqua had pursued its claims in good faith even though it may have brought the litigation to gain a competitive advantage.

Concurrence. In a concurring opinion, Judge Bush stated that the majority properly applied Sixth Circuit case law but asserted that the court should revisit its precedents regarding interpretation of a consent decree entered by a federal court. While the Sixth Circuit interprets consent decrees as contracts that are interpreted using state law, he argued that federal law should provide the rule of decision for the case.

This case is Nos. 18-2397/2398.

Attorneys: Craig Robert Smith and Eric Peter Carnevale (Lando & Anastasi, LLP) for Evoqua Water Technologies, LLC. G. Thomas Williams, III (McGarry Bair PC) for M.W. Watermark, LLC and Michael Gethin.

Companies: Evoqua Water Technologies, LLC; M.W. Watermark, LLC

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